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IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘A’ BENCH KOLKATA Before : Shri J.Sudhakar Reddy, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member
I.T.A. No. 09/Kol/2017
Khaitan Foundation P-38 India Exchange Place 3rd Floor, Kolkata-700001. PAN: AAATK 6308 F …. Appellant -vs-
CIT(E), Kolkata. 10B, Middleton Row, 6th Floor Kolkata-700071 …. Respondent
Appearances by: For Appellant Assessee: Shri Sunil Surana, FCA For Respondent Revenue: Shri G. Hangshing, CIT DR
Date of hearing : 25-10-2017 Date of pronouncement : 19-01-2018
Shri. S.S.VISWANETHRA RAVI, JM:
This appeal by the assessee is filed against the order dated 23.12.2016 passed by the Ld. CIT(Exemption) u/s 12AA(D) of the Income Tax Act, 1961(The Act).
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The only issue to be decided is whether the Ld. CIT(E) is justified in cancelling the registration granted u/s 12AA of the Act, in the facts and circumstances of the case.
The brief facts of the case are that the assessee is a trust registered u/s 12A of the Act vide order dated 14.05.1997. The Income Tax Department conducted a survey operation on 11.09.2015 on M/s Govind Ram Goel Charitable Trust u/s 133A of the Act. During the course of survey operation the revenue allegedly found that the said trust has indulged in money laundering and providing accommodation entry to different individuals and organizations.
On perusal of the records of the assessee relating to FY:2013- 14, the respondent found the assessee paid bogus donations amounting to Rs. 7,00,000/- to M/s Govind Ram Goel Charitable Trust. According to the respondent, the managing trustee i.e. Shri Anand Agarwal in his statement recorded u/s 131 of the Act accepted the same i.e that he had given a pre-arranged accommodation entry in the form of bogus corpus donation and admitted that they paid cash to accommodation entry operators and they received the same amount but by cheque through a web of financial transactions. The respondent basing on such statement formed an opinion that the assessee has indulged in money laundering which is illegal. As the said activity is not genuine and not in consonance with the objectives of the trust, the ITA No. 09/Kol/2017 Khaitan Foundation 2
CIT(E) wanted to cancel the registration granted to the Trust u/s 12A of the Act.
Accordingly, the respondent issued a show cause notice dated 03.12.2015 to the assessee seeking explanation as to why the registration granted u/s 12A should not be cancelled. In response to the said show cause notice the assessee filed written submissions dated 07.01.2016, 29.01.2016, 13.04.2016, 27.04.2016 and 22.11.2016 stating the statement made by the third party during the course of survey operation is not binding on the assessee and the proceedings initiated in pursuance of which is not tenable and placed reliance on the decision of Hon’ble Supreme Court in the case of S. Khader Khan & Sons reported in 352 ITR 480. The said submissions of the assessee was found not acceptable to the respondent and held that the activities of the assessee are not genuine and not being carried out in accordance with the objectives of the trust. The CIT(A) cancelled the registration granted u/s 12A of the Act with effect from 01.04.2013 by holding as follows:
“The submission of the trustee was carefully perused but not found to be tenable . The underlying principle is that for money laundering, the beneficiary has to route his cheque/RTGS to various layers through a consorted web of financial transactions and after payment of commission, gets back his money in cash. The modus operandi of this type of money laundering can be best understood by pictorial representation as depicted as follows:
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The AR of the society also requested for cross examination of Shri Anand Agarwal, Managing Trustee of M/s Govind Ram Goel Charitable Trust. Kind reference may be made to the order of the Hon’ble Bombay High Court in the case of GTC Industries vs. Assistant Commissioner of Income Tax (1998) 60 TTJ (Mum) 308] wherein the Hon’ble High Court has made some observations, excerpts of which are as herein under:
“In our opinion, right to cross-examine the witness who made adverse report, is not an invariable attribute of the requirement of the dictum, audi alteram partem. The principles of natural justice do not require formal cross-examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence, and is the creation of Court. It is part of legal and statutory justice, and not a part of natural justice, therefore, it cannot be laid down as general proposition of law that the Revenue cannot rely on any evidence which has not been subjected to cross-examination.”
The view of Hon’ble Calcuttta High Court in the case of Manindra Nath Chatterjee vs. Collector of Central Excise & Another (supra) is “Whether in a particular case the particular party should have the right to cross-examine or not depends upon the facts and circumstances of a particular case. This is so, because the right to cross-examine is not necessarily a part of reasonable opportunity.”
Similar judgments were also pronounced by the Hon’ble Kerala High Court in the case of M.K. Thomas vs. State of Kerala [40 S.T.C. 278] in view of the decision of Hon'ble Supreme Court in the case of K.T.Shaduli vs. State of Kerala [39 S.T.C. 478 S.C.].
All these judgments/decisions lead to one conclusion that right to cross-examine the witness, who made adverse reports, is not an invariable attribute of the requirement of the dictum,’audi alterant partem’.
It is pertinent to mention here that the case law mentioned by the assessee trust in the case of S Khader Khan & Sons is not applicable in this case.
Indulging in ingenuine activities which is not at par with the trust deed leads to the ultimate conclusion that the society is in the act of money laundering which is illegal, not genuine and not at par with the objectives of the trust.
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The provision of section 12AA(3) of the I.T.Act, 1961 is as follows: “Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (Non.2) Act, 1996 (33 of 1996)] and subsequently the [Principal Commissioner or] Commissioner of is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution.” Considering the activities of the assessee not genuine and are not being carried out in accordance with the objectives of the Trust, the registration u/s 12A of the Income Tax Act, 1961 vide order no. DIT(E)/T-17/8E/175/96-97 dated 14.05.1997 is hereby cancelled u/s 12AA(3) of the I.T.Act, 1961 w.e.f. 01.04.2013 i.e. F.Y 2013-14 relevant to A.Y 2014-15, as the violation took place in the F.Y. 2013-14. “
Aggrieved the assessee before us challenging the order of respondent. The Ld. AR submits the registration u/s 12A of the Act was cancelled by the respondent only on the basis of the statement recorded by the respondent from a third party. The said statement recorded in survey proceedings cannot be relied upon to cancel the registration of the assessee and the same submissions were made before the respondent in response to the show cause notice and placed reliance on the decision of the Hon’ble Supreme Court in the case of S.Khader Khan & Sons for the proposition that the statement of a third party recorded in the survey proceedings is not binding on the assessee and without considering the same the CIT-E arbitrarily passed the impugned order. The said statement of the third party recorded u/s 133(1) of the Act was retracted thereafter and hence no decision can be based on such retracted statement. Even otherwise nowhere the said statement it was stated by the third party the assessee has given cash or taken monies from i.e. Govind Ram Goel Charitable Trust. He submitted that the CIT(E) has cancelled the registration by making general allegation without any evidence against ITA No. 09/Kol/2017 Khaitan Foundation 5
the assessee. No opportunity to cross examine the witness. The Ld. AR submits that the respondent has no power invoke the jurisdiction under sub-section (3) of Section 12A of the Act as there was no adverse finding given by the respondent that the activities of the assessee are ingenuine or that the activities of the assessee were not conducted in accordance with the objectives of the trust. Thus, he submitted that the requirements of section 12AA(3) are not satisfied. The Ld. AR prayed to allow the grounds of appeal.
The Ld. DR relied on the order of the respondent.
Heard both and perused the materials available on record. In our opinion, the Respondent to invoice its powers u/s 12AA of the Act has to satisfy that the activities of such trust or institution, are not genuine or are not being carried out in accordance with the objects of the trust or institution. The Respondent is empowered to examine all the details of the trust or institution which has got registration u/s 12A in terms of exercising its power under sub-Section 3 of Section 12AA of the Act and having done so, we find that no adverse finding is made by the Respondent regarding the activities of the assessee are not in accordance with the objects and its activities or that they are not genuine. Therefore, in our opinion, exercising jurisdiction under sub- Section 3 of Section 12AA of the Act in cancelling the registration by the Respondent is not maintainable and thus, it is set aside. Even ITA No. 09/Kol/2017 Khaitan Foundation 6
otherwise, reliance cannot be placed on retracted statement of a witness without giving an opportunity to the assessee to cross examine the witness. The name of the assessee is not mentioned in this statement. There is no evidence to corroborate this statement. Other than this statement there is no other evidence with the Ld. CIT(E). Hence the cancellation of the registration is bad in law. Ground no’s 1 to 4 raised by assessee in this regard succeeds and are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 19-01-2018.
Sd/- Sd/- J.Sudhakar Reddy S.S. Viswanethra Ravi Accountant Member Judicial Member
Date: 19-01-2018
SB,Sr. PS Copies to : (1) Appellant/Department: Khaitan Foundation (2) Respondent/Assessee: CIT(E), Kolkata (3)Commissioner of Income-tax (Appeals) (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File
By order
Sr.PS/H.O.O ITAT, Kolkata
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